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Donald Trump’s impact ‘Down Under’

Deloitte WA Index

10 February 2017: The Deloitte WA Index strengthened during the month of January as the market capitalisation of Western Australian listed companies increased by 1.64% to close at AU$161.3bn.

Deloitte Clients & Markets Partner – Western Australia, Tim Richards, said:

“The WA Index posted its third consecutive month of gains in January. Resource stocks strengthened with continued growth in iron ore prices sparking strong trade in key iron ore miners such as Fortescue Metals Group. The growth in resource stocks was partially offset by investor uncertainty surrounding the early days of Donald Trump’s US presidency, including the controversial immigration policy.”

Among the major Index players:

  • Fortescue Metals Group Limited’s market capitalisation rose by AU$2.4m (13.1%) off the back of rising iron ore prices. The company has had a strong last quarter after its commitment to cost cutting and debt repayment. This was further reflected in Moody upgrading Fortescue’s corporate rating to Ba1
  • Galaxy Resources Limited’s market capitalisation rose by AU$172.0m (17.8%) after completing its first shipment of lithium concentrate from the recommissioned Mt Cattlin Project. This is a significant milestone for the company which has expected production of 160 thousand tonnes for the current year in 2017
  • Sandfire Resources NL announced its intention to repay AU$50m on its DeGrussa Finance Facility 12 months ahead of schedule. Recent improvements in copper prices coupled with a strong cash position allowed for the large debt repayment which bolstered Sandfire’s market capitalisation, having grown AU$148.5m (16.7%) during the last month.

Key commodities surveyed during January included:

  • Iron ore has managed to hold onto gains from 2016 and post an additional rise in January of 3.7%. Whilst inventory and supply fundamentals are at odds with this outcome, a rising steel price in China has seen the bulk commodity holding its ground
  • Coking coal decreased by 6.8% landing at US$179.00 per tonne following the Chinese Government partially reversing the restriction on coal mine operating days
  • Crude oil retreated to US$55.39 per barrel, dropping by 2.3%. Rising inventory levels and uncertainty on how US shale-oil production would respond to OPEC’s decision to restrict supply, led to a moderation in recent crude oil price strength
  • Gold was in demand as investors became cautious on US President Trump’s trade and foreign policies. The new US administration sought to push the US dollar lower, prompting an offsetting rise in the gold price which increased by 4.7% during the month.

All but one of the equity markets surveyed weakened slightly during the month of January:

  • The All Ordinaries remained steady, falling by -0.8%. The market was strengthened by surging bank and resources stocks which ultimately benefited from rising commodity prices evident in iron ore, gold, aluminium and uranium. This growth however was outweighed by concerns over the potential economic impact of US President Donald Trump’s immigration policy
  • The S&P 500 gained during January, posting a 1.8% increase. Historical trends show the S&P 500 typically strengthens after the inauguration of a new US president; January’s success was most evident in mining, energy and financial stocks
  • The FTSE 100 followed the All Ordinaries, weakening by -0.6% in January. Similarly, the index suffered from President Donald Trump’s recent immigration policy which has begun to suppress investor enthusiasm. Recent job reports within the US however have implied optimism for the American economy within the next year, offsetting this decrease along with the weakened pound
  • The Nikkei posted a small loss this month, with a slight decline of -0.4% after fears regarding the impact of US President Donald Trumps’ future economic policies which would drive a stronger yen. Claims have been made by Trump suggesting that China and Japan have been gaining advantage on US trade policies through currency devaluations.

Top Deloitte WA Index Movers and Shakers in January included:

  • Greenland Minerals and Energy Limited recently formed a strategic relationship with a subsidiary of Shenghe Resources Holdings Co Ltd. The relationship aims to develop the Kvanefjeld rare earth and uranium project in Greenland which contains 11.1 million tonnes of rare earth oxide and 593 million pounds of uranium. During January, the company posted a massive 117.4% increase in market capitalisation from AU$68.9m to AU$149.9m
  • Blackham Resources Limited’s market capitalisation soared AU$87.2m (67.8%) on the announced exploration success at the Wiluna Gold Operation. This highlighted resource upgrades providing an additional 1.5 million metric tonnes per annum crushing and grinding circuit to process Wiluna Ores. The announcement promoted a 25% total resource increase since the last quarter
  • Atlas Iron Limited’s market capitalisation rose by AU$155.6m (63.0%) during January, largely thanks to the repayment of AU$54m in debt which cut their US term loan debt down to AU$118m. The substantial debt repayment is a reflection of the strengthening iron ore price, offset in part by the impact of the lower Australian dollar on the balance of US dollar denominated debt.

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